Tuesday, June 11, 2013

Mortgage Debt in Ireland

The Q1 2013 update of the Private Household Credit and Deposits series from the Central Bank gives the following chart for mortgage debt in Ireland.

Total Loans for House Purchase

Since peaking at €149 billion at the start of 2009 the amount of mortgage debt issued by banks in Ireland to Irish households has fallen to €126 billion.  However, there are two reasons why these figures are not directly comparable.

First, it should be noted that a good portion of this drop is accounted for by the exit of Bank of Scotland (Ireland) from the set of reporting institutions following its withdrawal from the Irish market in December 2010 (see step decline at that time in chart above).  

Second, December 2010 also saw a change in how the data are reported.  From the explanatory notes:

As of December 2010, the outstanding amount of loans is reported at nominal value, i.e. the gross position owed on loans by the credit institutions’ counterparties. Prior to December 2010, the book value of loans is reported, which reflects the carrying value of these loans on credit institutions’ balance sheets and are net of impairment provisions recognised against those loans. As a result, the outstanding amount of loans and related series increased substantially in December 2010.

This change may have “increased substantially” the outstanding amounts the departure of BOSI and its estimated €10 billion mortgage book meant there was an €8 billion decline in the reported total for December 2010.

All told there probably has been a nominal reduction of around €17 billion in the total amount of mortgage debt owed by Irish households in the past four years.  Separate data from the Irish Banking Federation show that €8 billion of new mortgage debt has been issued to first-time buyers and mortgage top-ups.  It also likely that some elements of the loans to mover-purchasers, re-mortgagers and BTL borrowers would lead to more new debt.

Given the €17 billion reduction in the nominal amount owing and the €8 billion increase from new debt then something around €25 billion of the mortgage debt that existed at the peak Q1 2009 has been repaid.  This is a repayment rate of around €1.5 billion per quarter.

Of course a large portion of the €126 billion that remains will never be repaid and very slow steps are being taken to address that.  The scale of this problem is usefully described in this chart from a recent piece in The Atlantic magazine.


The following table breaks down the total amount of mortgage debt by Private Dwelling House and Buy-To-Let loans with detail on the interest rates applicable to each also provided. [A small amount of loans for second homes/holiday homes are omitted].  Click to enlarge.

Mortgage Debt


  1. Seamus

    I realise you're a very busy man but I wonder if in the future you might consder doing some figures on what the effects of a 15-25% rise in house prices over a period of 18 months from late 2012 onwards might have on our negative equity problem. All solutions to this problem revolve around write-offs, extensions, forbearance, interest-only, split mortgages etc etc, none of which I have any difficulty with.
    But as an investor who is on the ground on a daily basis in Dublin I see a sea change in the market in the past few 6-8 months - bidding wars, gazumping, sales agreed in days and weeks instead of months, bids going to best and final offer very quickly in many cases, agreed sales falling through to be re-agreed at higher levels 2-3 months later, record numbers viewing (if you are in Dublin any Saturday, click this link, http://www.myhome.ie/onview and see for yourself what I'm talking about), Ulster Bank's property arm, West Register in the market bidding, re-entry of institutions into first-time buyer lending, no fall-off in price or demand after the shutdown of the tax relief window in Dec 2012, a very, very strong rental market.

    Most shocking of all for me, though is the current competition for sites since anyone bidding for these must have the cash there being no possibility of borrowing for spec investment and in all cases I've been involved with proof of funds is obligatory with one's bid. These observations are largely anecdotal and confined to Dublin since I am utterly unqualifed to guage the overall market's state or forecast its likelihood of continuing to improve or indeed debate the desirability of its so doing. However, the percentage rises I mentioned earlier seem to me unambitious in Dublin and if sustained they surely have implications for some of our debt/inability to pay/negative equity problem and I've not seen this commented on elsewhere. It has obvious effects, too on the banks' balance sheets.

    The 2011 Census has 2m houses in the country, which if multiplied by the 2012 average price of c. 200k gives a total value of 400bn, 10% of which is c. €40bn which is larger than any figure I've seen for negative equity. Obviously there are large problems of finding data/allocation problems between investment/residential, different areas and those in NE and those not etc but this is I suppose where you might come in!

    I would have thought this an exercise at least as worth doing as Gregory Connor's numbers on strategic default which seem to have gained more legs than they deserve given the tentativeness with which he ventured them. Your good self, Ronan Lyons and Constantin Gurdjiev are the best sources I know of data-driven, evidence-based comment on the economy and your views on this matter would be very welcome.

    Yours in anticipation
    Jim O'Regan

  2. Jim, "15-25% rise in house prices over a period of 18 months from late 2012 onwards".

    With thousands of repossessions coming to market later this year, I would expect to see Dublin prices fall by 15-25% now that most of the cash buyers have been exhausted.

    1. Stumbling across this piece in Oct 2014...and with the benefits of 16 months passage of time...Jim O'Regan's observations are shown to be spot on, while poor John Foster called it terribly wrong.

  3. The Property Price Register shows that the level of actual sales activity in Dublin is significantly down from the December Mortgage Interest Relief deadline and that there has been barely any pick up in sales over the same period last year.

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